Pom Files Suit Against FTC

Company Says New Standards Violate Its Free Speech

CHICAGO (AdAge.com) -- The Federal Trade Commission has of late issued subpoenas and opened investigations of many marketers. But Pom Wonderful, makers of pomegranate juice, on Sept. 13 filed a lawsuit against the FTC, claiming the agency has created new regulations for the evaluation of deceptive advertising that squash the company's first-amendment rights.

According to Pom's legal filing, the FTC standard requires marketers to get approval from the U.S. Food & Drug Administration before making any claims about the health benefits of food, beverages or dietary supplements. "Until now, the FTC had regulated only 'deceptive' speech or advertising. The FTC never before required prior approval of advertising statements by any agency or the FDA. Invoking such a requirement, in effect, constitutes a ban on both deceptive speech and non-deceptive speech, the latter of which is protected by the first amendment," the complaint said.

Pom's filing adds that the FTC's "new standard" and set of requirements to the food industry were "represented" to Pom and the food industry at large, not through the process of rule-making, but through two consent orders against Nestle USA and Iovate Health Sciences published in July. Nestle in the consent order agreed to drop allegedly deceptive advertising claims about the health benefits of its Boost Kid Essentials drink.

But the July 2010 consent orders left some in the food industry wondering what standards the FTC would be requiring. "From an industry perspective, the Pom case is a case that needed to be brought," said Linda Goldstein, chair of the advertising, marketing and media group at law firm Manatt & Phelps. "Since the issuance of those consent decrees, the industry has been left in the dark, not really knowing what level of substantiation the FTC would now be requiring, and whether these standards would be imposed on an industry-wide basis."

Ms. Goldstein added that Pom's claims may be difficult to prove, but its potential outcome could be wide-reaching for food marketers. "It could be a very significant case to the extent that it's testing the FTC's ability to impose standards set forth in a consent decree, on an entire industry, without engaging in rule-making. Typically the FTC's position is that claims need to be reviewed on a case-by-case basis, and it will be interesting to see what the FTC's response will be."

Finding a delicate balance between marketers' freedom of speech and protecting consumers against false advertising is also an issue in the Pom case. "What you want is a fair marketplace because that's beneficial to consumers. But you can't have overly restrictive rules because of the first amendment. Whether the FTC is issuing overly restrictive rules in this instance is not clear based on the data available at this point," said Dan Jaffe, exec VP-government relations of the ANA. "As the FTC lays out its policies, that'll be a signal to the industry on what to do in the future. The FTC, and all federal regulators, are limited primarily by the first amendment, which states that you can only restrict commercial speech under very tight limitations."

While the suit is potentially significant to food marketers, it's not unprecedented. Basic Research, a dietary-supplement manufacturer, in December 2004 filed a complaint stating that the FTC unlawfully tried to suppress the marketer's first-amendment rights regarding its marketing of Relacore, a dietary supplement. Basic Research and the FTC settled the case in May 2006, and Basic Research agreed to dismiss the lawsuit and release any claims it had against the FTC.

Pom's penchant for filing lawsuits goes beyond government entities. Pom has sued several of its competitors -- Welch's, PepsiCo's Tropicana and Coca-Cola Co.'s Minute Maid, to name a few -- for falsely advertising the health benefits of their juices.

A spokeswoman at the FTC said the agency had no comment. Pom Wonderful declined to comment.